The Obama administration is dropping its plan to cap salaries at firms receiving government bailout money, leaving them subject to congressionally imposed limits on bonuses, according to people familiar with the matter.
The move is likely to end months of confusion on Wall Street about separate pay directives from the White House and Congress.
The administration is expected to announce the compromise on Wednesday. In addition to standing behind the restrictions passed by Congress in February, the administration plans to push for broad changes in compensation practices across the financial-services industry, these people say.
It also will appoint a "pay czar" to monitor the firms receiving the most government aid. Treasury Secretary Timothy Geithner is expected to push all firms -- not just those receiving funds from the government's Troubled Asset Relief Program -- to more closely tie incentive compensation to long-term performance by paying employees in restricted stock, rather than cash.
The expected announcement will come one day after the Treasury Department told 10 of the largest U.S. financial institutions that they may repay $68 billion in government-bailout cash. The announcement set the stage for giant banks like J.P. Morgan Chase & Co., securities firms Goldman Sachs Group Inc. and Morgan Stanley and the other approved companies to escape the grip of tight restrictions.
The pay provisions were a key motivator for some banks to repay the TARP money. The most restrictive portions of Congress's rules targeted senior executives and top earners at firms receiving more than $500 million in government funds, limiting bonuses to no more than a third of total annual compensation.
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